The Earned Income Credit (EIC) is a refundable credit that can reduce the total income tax or potentially offer a refund if the credit exceeds the tax liability.
Based on the information provided for the tax return on the software, the taxpayer may or may not be eligible for the credit. The software automatically calculates multiple factors like earned income, filing status, and dependent information to determine eligibility.
Below are the default steps for marking the EIC on the tax return, as well as common reasons why the credit might not be applied as expected:
It’s important to check the filing status and dependents attached to the tax return. Missing this information can result in an error when trying to access the Schedule EIC screen.
To access the Schedule EIC screen:
Go to Federal Information to expand the dropdown menu of all federal form categories.
Select Credits to open the credits page.
Click on Schedule EIC - Earned Income Credit to open the Schedule EIC screen where you can choose up to three dependents to claim the credit. Their information will be automatically populated from the dependents screen.
To access the Schedule EIC - Checklist:
Go to Federal Information to expand the dropdown menu of all federal form categories.
Select Credits to open the credits page.
Click on Schedule EIC - Checklist to open the checklist screen, where you can answer eligibility questions for the qualifying dependents or for taxpayers without qualifying dependents.
To calculate the EIC on the tax return, Form 8867 (Paid Preparer’s Due Diligence Checklist) must be completed.
To access Form 8867:
Go to Federal Information to expand the dropdown menu of all federal form categories.
Select Miscellaneous Forms to open the miscellaneous forms page.
Click on Paid Preparer EIC Checklist to open the 8867 Form screen, where you can answer due diligence questions for the relevant credit the taxpayer is claiming.
After completing all required forms and screens for claiming the EIC, the credit amount may still not be calculated or applicable for the taxpayer.
Common reasons why the EIC is not being claimed:
Earned Income Is Too High: The IRS sets a specific range of earned income for each filing status each year, which determines eligibility for the credit. You can test this by adjusting the AGI on the return and checking the current income limit from the IRS website.
Disqualifying Income: Some sources of income, like foreign income and certain benefits, may disqualify the taxpayer from claiming the credit. Test this by adjusting the source of income on the return.
Non-Qualifying Dependent: Not all dependents qualify for the EIC. Factors that might disqualify a dependent include relationship, residency, citizenship, support, and income levels.
Tax Liability: The EIC might not be applied as a refundable credit added to the total refund amount if there is existing tax liability that was already reduced by the credit amount.
The content provided under this page is for informational purposes only and should not be considered legal, accounting, or tax advice. |